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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process

A clearing member fails to deliver the securities for a sale in the equity cash segment on the pay-in day, and the shortage cannot be met. Which mechanism does the exchange use to close out the short delivery?

The exchange conducts an auction for the short-delivered securities so that the buyer can still receive them. If the auction does not produce securities, the trade is closed out at the prescribed close-out price, not cancelled arbitrarily.

  1. AAuction of the shortfall securities on the exchangeCorrect
  2. BRejection of the buyer's trade with no further action
  3. CCancellation of the seller's demat account
  4. DAutomatic conversion into a futures position

Explanation

When a seller fails to deliver, the exchange conducts an auction for the short quantity so the buyer receives the securities. The buyer's trade is not simply cancelled, and no demat account is closed or conversion made. If the auction fails, the trade is closed out at a defined price.

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